Yield Farming Analysis

When to use this skill

Use when the user asks about:

• Evaluating yield farming opportunities
• Comparing DeFi yields across protocols
• Assessing farming risks and sustainability
• Calculating impermanent loss for a token pair
• Finding the best yield for a given asset or pair

Analysis Framework

1. Opportunity Overview

Gather and present:

• Protocol name, chain, and deployment history
• Pool composition (token pair or single-sided)
• Current APY/APR with base vs incentive breakdown
• TVL (Total Value Locked) and recent trend
• Pool age and historical APY stability over 7d, 30d, 90d

2. Yield Breakdown

Decompose the advertised yield into:

• Base trading fee APY — derived from actual volume
• Incentive token APY — farming reward emissions
• Compounding frequency — auto-compound available?
• Sustainability check — review emissions schedule, token inflation rate, and runway
• Comparative yield — how does this compare to similar pools on other protocols?

3. Risk Assessment

Evaluate each factor systematically:

Risk Factor	What to Check
Smart contract audit status	Audited by reputable firm? Multiple audits?
Protocol TVL trend	Growing, stable, or declining over 30d?
Token emission schedule	Inflationary pressure on reward token?
Impermanent loss exposure	High volatility pair or correlated assets?
Admin key risk	Multisig with timelock? Or single EOA?
Oracle dependency	Which oracle? Redundancy?
Liquidity depth	Can the user exit at size without significant slippage?
Chain risk	Bridge dependencies, L2 sequencer risk?

4. Impermanent Loss Estimation

For the given token pair, calculate IL scenarios:

• Retrieve current price ratio between the two assets
• Pull historical volatility (30d and 90d)
• Compute correlation coefficient if data available
• Present IL at these price divergence levels:
  • ±10% divergence: ~0.11% IL
  • ±25% divergence: ~0.6% IL
  • ±50% divergence: ~2.0% IL
  • ±100% divergence: ~5.7% IL
• Compare estimated IL against yield to determine net profitability

5. Output Format

Provide a structured recommendation:

• Protocol: Name and chain
• Pool: Token pair and fee tier
• Current APY: X% (base Y% + rewards Z%)
• Verdict: Strong / Moderate / Weak / Avoid
• Expected net APY: After estimated IL
• Risk level: Low / Medium / High / Very High
• Suggested allocation: Percentage of portfolio (never more than 10% in a single farm)
• Minimum lock awareness: Any withdrawal fees or lock periods
• Exit conditions: Specific triggers for when to withdraw (reward token drops X%, TVL drops below Y, APY falls below Z)